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Payment Gateway vs. Merchant Account

When you make the decision to accept credit cards for your business, either at a physical location or online, quite a few choices need to be made. One is selecting from the many different solutions regarding how to process your credit card payments. The two most prominent choices are a merchant account and a payment gateway. Although they may sound similar, they are actually very different.

Payment Gateway

This type of account allows you to process a credit or debit card and have the money deposited into your business account. While annual or monthly fees are not common, transaction fees are. This means that each time you accept a credit card for payment, the payment gateway company takes a percentage of that transaction total.

Although payment gateways are simple, they are most useful to smaller companies that do not have a huge volume of business or those that do not process a large number of credit card transactions. Most often payment gateway companies are not backed by banks or other financial institutions and are usually not regulated the same way merchant accounts or other banking processes are.

One downside to using a payment gateway is that it is easy for customers to complete a chargeback or deny the charges that your business placed on their credit or debit cards. Also, some customers feel that customer service at some of the larger companies that provide these services (such as PayPal, for example) is not very good.

Merchant Account

With a merchant account, when your business accepts a credit card, the transaction is processed by a company that bills your business on a regular basis for this service and then adds either yearly or monthly fees and/or per-transaction fees. Merchant account companies are services that you should treat the same way you do your actual bank account. Identify a merchant account provider that meets your needs and then sign a contract that specifies the specific services you require and the designated length of your relationship.

A major drawback of these types of companies is, in some cases, the fairly large fees as well as the early termination penalties they impose. Take your business’s needs into consideration and determine the solution that is best for you. 

Welcome to the BluePay Blog!

Whether you're a small business, an enterprise corporation, a financial institution, or a software partner, we have created a series of blog posts to help you and your customers, learn more about the complex nature of payments. Take a look to learn how payments can help to simplify your business operation, and may even help to grow your revenue.

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